Black Knight – June 2018 Mortgage Monitor

– Home price appreciation slowed each month from March through May, the first three-month slide in nearly four years

– Though every state saw prices increase in May – typically one of the strongest months for home price appreciation – the average home gained just 0.93% in value, the lowest growth rate for any May in the last four years

– Two-thirds of both states and large metropolitan areas have seen slowdowns in rates of home price appreciation

– 32 states have seen price gains slow, while 18 have picked up speed, with California seeing three times the national average deceleration

– Cooling home prices, combined with a slight reprieve in interest rates, have been enough to hold affordability steady

– The cost to purchase the average-priced home has increased by only $4 per month over the past two months as compared to a $138 per month increase through the first five months of 2018

The Data & Analytics division of Black Knight, Inc. released its latest Mortgage Monitor Report, based on data as of the end of June 2018. This month, Black Knight examined the slowdown in the rate of home price appreciation seen from March through May 2018, while also gauging the impact this slowdown and slightly lower interest rates have had on home affordability. As Ben Graboske, executive vice president of Black Knight’s Data & Analytics division explained, what is being seen is not a matter of home prices falling, but rather a slowing in their continuing increase. “In May – typically one of the strongest months of the year for home price growth – every state in the nation saw home prices increase,” said Graboske. “However, the average monthly gain in value of less than one% was the lowest for any May in the last four years. In addition, the annual rate of appreciation declined each month from March through May, the first three-month slowdown in almost four years. Thirty-two states, as well as 33 of the 50 largest metropolitan areas, have experienced slowdowns in appreciation over the same period.

All that said, the annual rate of home price growth is still historically high at 6.3%, some 2.5 percentage points above long-term norms. For more than six years, we’ve been riding a wave of home price appreciation above the 25-year average. The question now is whether tightening affordability will end that streak and if more deceleration is on the horizon. “On that front, the recent cooling of home price gains and slight reprieve in rising interest rates have combined to stabilize affordability in recent months. As rates have ticked down from 4.66% in late May to 4.52% in mid-July, the monthly principal and interest payment to purchase the average home has only increased by $4 per month – significantly less compared to the $138 per month increase we saw over the first five months of 2018. Still, the $1,213 in principal and interest per month needed to buy the average home remains near a post-recession high. While that represents a nearly $500 per month increase from the bottom of the market in 2012, it’s important to keep in mind that it’s still roughly 13% less than was required back in 2006.”

This report also looked at how rising short-term interest rates have impacted holders of outstanding adjustable-rate mortgages (ARMs), finding that 1.7 million such borrowers have seen their monthly mortgage payments increase by an average of $70 over the past 12 months. This subset of borrowers had been the beneficiary of downward reductions in their rates and payments following the financial crisis, but that’s no longer the case. Increases to both the LIBOR and constant maturity Treasury rates have resulted in the average rate on a post-reset ARM rising by more than .5% over the past 12 months and nearly .75% over the past two years, pushing the average post-reset ARM interest rate to more than 4.5%. While this has not led to any measurable increase in post-reset ARM delinquencies, ARM loans are now prepaying at a 70% higher rate than their fixed-rate counterparts over the past 12 months. This is a trend that may continue as an estimated 1 million borrowers would face an additional payment increase upon their next reset if index values were to hold steady at today’s rates.

As has reported in Black Knight’s most recent First Look news release, other key results include:

Oil prices climb following unexpected production dip

Former Shell Oil President John Hofmeister on the outlook for oil prices.

Oil prices climbed Monday amid reports that Saudi Arabia’s crude production fell unexpectedly in July, while the reimposition of sanctions on Iran sparked concerns of a tighter oil market supply/demand balance in the future. Last Friday, two OPEC sources said that Saudi Arabia produced about 10.3 million barrels per day of crude oil in July, down about 200,000 barrels per day from June, according to Reuters. OPEC and Russia agreed in June to start increasing crude oil production after prices rallied to a 3 1/2 year high on a tighter market fundamentals which followed more than a year of output curbs. The US will reimpose the first set of sanctions on Iran on Monday as part of its decision to pull out of the Iran nuclear deal. The remainder of the sanctions, including oil, will take effect in November, a White House official told FOX Business’ Edward Lawrence. The sanctions on oil could ultimately block more than 1 million barrels a day of Iran’s approximate 2.5 million barrels a day of crude oil exports.

Also, the latest drilling update indicated that production in the US decreased in the prior week. Baker Hughes on Friday reported that the number of active oil rigs decreased by 2 versus the prior week.

Wells Fargo: Error contributed to hundreds of foreclosures

Wells Fargo says a company miscalculation could be the reason for hundreds of foreclosures, the bank revealed in a regulatory filing Friday. The report, filed to the Securities and Exchange Commission, said 625 customers were “incorrectly” denied a loan modification or were not offered a modification, all of which should have qualified. Out of those cases, 400 homes were foreclosed, something Wells Fargo defends might have happened anyway. To make up for the mistake, Wells Fargo has accrued $8 million to remedy affected customers, the report said. That amount averages $12,800 per borrower but the company did not say how much each individual would get or how the compensation would be distributed. Wells Fargo spokesman Tom Goyda told the Los Angeles Times all are receiving what the company deems is appropriate given the circumstances. “We’re very sorry that this error occurred,” Goyda said, adding there is not a 100% “clear cause and effect relationship between the modification denial and the ultimate foreclosure.” Goyda said he could not say what prompted the review of the loan modifications.

The latest finding adds to the bank’s growing list of problems, including a scandal in 2016 after regulators found the bank had opened millions of accounts without customers’ permission to meet quotas and generate sales bonuses. On Wednesday, the bank agreed to pay a $2.09 billion penalty for issuing mortgage loans it was aware contained incorrect income information. The bank agreed to pay the civil penalty under the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 for the actions, which the government said contributed to last decade’s financial crisis. In June, Wells Fargo agreed to pay $5.1 million to settle charges of financial misconduct, after the SEC learned the bank generated large fees by improperly encouraging retail customers to actively trade market-linked investments, which were intended to be held to maturity. In addition, the SEC found that Wells Fargo did not properly investigate employees who were engaged in the practice and supervisors systematically approved the transactions, despite internal policies prohibiting similar practices. In February, the Federal Reserve capped Wells Fargo assets until the bank reforms itself to the regulator’s satisfaction.

Millions drop off food stamps

The number of people collecting foods stamps has dropped tremendously since President Trump took office, according to the latest numbers from the US Department of Agriculture (USDA). More than 2.8 million have stopped participating in the Supplemental Nutritional Assistance Program (SNAP) – commonly known as food stamps – since Trump’s first full month in office, the data showed. Food stamp enrollment in May 2018 was 39,329,356 versus 42,134,301 in February 2017. SNAP, which provides resources for individuals and families in need of food assistance, numbers are consistent with the downward trend seen over the past few years. It also comes as the Trump administration attempts to reform the program on state and federal levels of government. Since Trump took office, the administration has zeroed in on promoting pro-growth policies. The economy is growing at a rate above predictions and job growth has been strong across the board, according to the White House.

DSNews – Goldman Sachs Moves Forward on Consumer Relief Obligation

Goldman Sachs has reached 62% of its $1.8-billion consumer relief obligation, which was enacted under its two April 11, 2016, mortgage-related settlement agreements with the US Department of Justice and three states. Eric D. Green, the independent Monitor of the consumer-relief portions of the agreements, has announced that the forgiveness of balances due on 1,127 mortgages has moved the bank $127.1 million closer to its agreement sum. Professor Green is a professional mediator and retired Boston University law professor, who was named by the settling parties as independent Monitor with responsibility for determining the fulfillment of Goldman Sachs’ consumer-relief obligations. Green has assembled a team of finance, accounting, and legal professionals to assist in the task. Since the last report, produced on May 15 of this year, Professor Green reports that “Goldman Sachs forgave the balances due on 1,024 first-lien mortgages, for a total principal forgiveness of $113,504,343, an average of $110,844 per borrower.” The bank also forgave amounts due and previously deferred on 103 first-lien mortgages, for total forgiveness of $5,139,100, an average of $49,894 per borrower.

These two reports resulted in the total reportable consumer-relief credit of $127,109,482 after the application of crediting calculations and multipliers specified in the settlement agreements. “Approximately 28 months after the settlement agreements were signed, the total amount of credit claimed and conditionally validated in my reports under both settlement agreements comes to $1,120,530,304, or 62% of the $1.8 billion target,” Professor Green said. The two agreements settled “potential and filed legal claims” regarding the marketing, structuring, arrangement, underwriting, issuance, and sale of mortgage-based securities. Goldman Sachs reached settlements with the Department of Justice, California, Illinois and New York, as well as the National Credit Union Administration Board and the Federal Home Loan Banks of Chicago and Des Moines. The bank agreed to provide a total of $5.06 billion under the settlements, including consumer relief valued at $1.8 billion to be distributed by the end of January 2021. According to the statement, the modified mortgages were spread across 45 states and the District of Columbia, “with 36% of the credit located in the settling states of New York, Illinois, and California, and 46% of the credit located in Hardest Hit Areas, or census tracts identified by the US Department of Housing and Urban Development as containing large concentrations of distressed properties and foreclosure activities.”